Social Security benefits are integral for millions of seniors. In fact, roughly one-quarter of workers expect their monthly checks to be their primary source of income in retirement, according to a 2022 survey from the Transamerica Center for Retirement Studies.
While the Social Security program can be complex and confusing at times, understanding how your benefits are calculated will make it easier to earn as much as possible each month. And there's one common mistake the majority of workers are making that could cost you in retirement.
What is your full retirement age?
Approximately 87% of workers cannot correctly name their full retirement age (FRA), according to a 2022 report from the Nationwide Retirement Institute. The most common guess among baby boomers was 63 years old -- which is far younger than the actual figure.
Your FRA is the age at which you'll receive the full benefit amount you're entitled to based on your career earnings. If you file for benefits before that age (as early as age 62), you'll receive a reduced benefit amount. By waiting a few years to begin claiming (up to age 70), you'll receive your full benefit amount plus a bonus each month.
Those born in 1960 or later have a FRA of 67 years old, while anyone born before 1960 will have a FRA of either 66 or 66 and a certain number of months, depending on your exact birth year.
The risks of not knowing your correct FRA
While misjudging your FRA by a few years may not seem too problematic, it can potentially be a costly mistake.
Claiming early will reduce your checks, potentially by hundreds of dollars per month. When you don't know your true FRA, you could end up inadvertently claiming early without realizing just how much of an effect that will have on your monthly payments.
For example, say your real FRA is 67 years old, and your full benefit amount is around $1,600 per month -- which is roughly the average benefit among retirees. Let's also say you mistakenly believe that your FRA is age 63.
If you were to begin claiming at 63, you may be expecting to receive your full benefit amount of $1,600 per month. In reality, though, you're claiming four years early. That will permanently reduce your benefits by 25%, or $400 per month in this scenario.
How to maximize your Social Security benefits
Simply knowing your correct FRA will go a long way toward maximizing your monthly checks, because you can be sure you're receiving the amount you expect.
Keep in mind that you don't necessarily have to file for benefits at that age, and there are legitimate reasons to consider claiming early or delaying. But when you know your FRA, you can more accurately determine how your benefits will be affected based on when you claim.
When you know how much you'll receive from Social Security, it will also be easier to plan and budget for retirement. Your benefits could make up a significant portion of your income, and the more you know about how the program works, the more prepared you'll be.